It Is Time for New Approaches to Health Club Membership Packaging and Pricing

Membership packaging and pricing has been the industry’s Holy Grail from the inception of the modern health club era. Since 1947, when Vic Tanny first introduced America to his glistening, carpeted health clubs, health club memberships have changed little. Whether it was Ray Wilson and his various club chains, Health and Tennis Corp. (later Bally Total Fitness), 24 Hour Fitness or today’s industry darlings (Equinox, Life Time Fitness, LA Fitness and Planet Fitness), one thing has remained relatively constant: the way memberships are packaged and priced. It seems the more we evolve, the less we change, and the more we replicate.

When Vic Tanny introduced us to the modern health club model, he also cast in stone some practices that remain a fixture in the industry today, including:

Membership contracts. Under Tanny’s model, people could purchase a membership for one month, three months, six months, one year, seven years or even a lifetime. In each case, members signed a contract, paid the price and lived with their decision. Today, many clubs still have ironclad membership contracts that leave little room for members to step out without paying the full amount stated in the agreement. The only things that have changed are the length of a membership agreement (most state legislatures have regulated the length to remove long-term agreements) and the manner in which these contracts are paid (the majority are now paid through monthly installments).

Misleading promotions, discounting and high-pressure sales. Tanny was the master at bait-and-switch advertising, price discounting, high-volume sales, and the behind-closed-door strong-arm tactics of closing. Today, due in large part to various state legislative actions, clubs cannot use bait-and-switch or some of Tanny’s other sales tactics. However, some chains still leverage some of Tanny’s other techniques, such as heavily discounted pricing, high-volume sales, misleading promotional techniques and high-pressure closing.

Installment Payments. When Tanny first introduced payment plans, customers paid in full upfront, but in future years, he introduced monthly installment plans in which his company served as a note holder, a practice that became prevalent in later years when offspring organizations, such as Health and Tennis, offered installment agreements. Today, rather than installment agreements, we have monthly EFT, which is only a modest change from the former method of stretching payments out over an extended term.

Initiation Fees. This is one membership pricing practice that cannot be credited to Vic Tanny, as it did not become prevalent until the introduction of monthly dues payments through EFT in the late 1970s. Nonetheless, initiation fees (enrollment fees, induction fees and administration fees) have been around for nearly 30 years. The only difference today is that most clubs have waived these fees in an effort to generate greater sales volume. During the past five years, the average club’s initiation fees have dropped from just over $150 to less than $100, according to IHRSA’s “Profiles of Success.” In addition, many of the larger chains often forfeit the majority of their posted fee as part of their sales promotions.

Instead of sticking with the past, some industry visionaries are changing their packaging and pricing by doing some of the following:

Exit fees. Instead of charging initiation fees, some club operators are charging exit fees if members leave before their contract is up. Although some operators who have tried this practice have only had marginal success, the practice has momentum in the country club business where initiation fees once dominated the landscape, so perhaps it eventually will take hold at health clubs. Departing members at these country clubs are charged the exit fee, but they are charged the monthly dues only for the time they used the club rather than being charged for the entire period of the agreement as health clubs are doing.

Need-oriented memberships. Rather than sell a membership that provides access and occasionally privileges, some clubs sell a package that targets a specific human need (anti-aging package, anti-cellulite package and back health package). Instead of being based on facility access, these packages offer a bundle of services, such as personal training, massage and nutrition guidance. In many cases, the cost of these bundled services was greater than a membership. When I did this as CEO of Russian Fitness Group, we gave people who purchased these packages access to the club even when they were not engaged in the bundled services.

Guaranteed results memberships. This membership option focuses on guaranteed results based on the realistic desires of a prospect. For example, if a prospect needs to lose 20 pounds, then an agreement is formulated that guarantees the weight loss based on commitments from both parties (a legal behavioral contract so to speak). Payment can then be done through a lump sum amount or through regular installments. If the result is not achieved because of failure on the club’s part, then the member receives a certain level of refund.

Four-week or two-week price offer. U.S. clubs typically quote annual or monthly prices. Many European operators set price per two-week period or four-week period. For example, instead of $20 per month for 12 months, they might charge $9.99 every two weeks for 26 periods or $19.98 for every four weeks for 13 payment periods. How is this any different? Well, $20 per month equals $240 for the year, but $9.99 every two weeks or $19.98 every four weeks equals $259.48, or another $20 per membership annually. If you have 5,000 members, that is another $100,000 annually. The secret is not the promotion of the lower price but the fact that the value of the experience is broken into smaller increments (two or four weeks instead of a month) and, as a consequence, extends the actual period of payment from 12 months to 26 two-week periods or 13 four-week periods.

Membership investment agreements. This approach initially was introduced in the 1800s by one of the industry’s pioneers, but it never took hold after his death. In the 1840s, Hippolyte Triatt sold a form of investment stock in his club. For a specific investment, the prospective investors received memberships and a specified number of private training sessions. The investors then had a choice to pull dividends, or if they preferred to waive the dividends, receive said value in the form of private sessions. This approach basically allowed Triatt to use the invested capital to build and operate his club. In later years, many privately held clubs, especially country clubs, adapted this concept in giving members equity. What if today’s market leaders created an investment tool that allowed prospects to invest in the club and in return they received access and, secondarily, the option for dividends based on the club’s performance or a specific number of customized sessions based on their needs?

These five suggestions are just the tip of how the industry might change its approach to membership packaging and pricing. The opportunities to change are endless but only if we are willing to take a serious look at what our past shows us, then commit to exploring new horizons. The first step must be to stop thinking of our business as a pure sales model. Instead, we must approach it as an engagement and dream fulfillment business. Then, and only then, will our minds have the freedom to explore new membership ideas.

Stephen Tharrett is president of Club Industry Consulting. He is the author of four books and is a former board member and president of IHRSA. Tharrett is involved in public speaking, having served as an international keynote speaker at conventions in Argentina, Australia, Brazil, China, England, Ireland, Japan, Russia, Singapore, Spain and Turkey, as well as domestic conventions such as Athletic Business, CMAA, IHRSA and SIBEC. He can be reached atSteve@clubindustryconsulting.com.